Seeking Alpha: Patient Investors Get A Crack At Plum Creek Timber

Timberland investing has become one of the more popular "open secrets" of institutional investing - numerous papers have been published comparing the long-term value and performance of investments in timberland to other asset classes, and timberland has often come out looking quite good. Not surprisingly, that has led to institutional dollars flowing into the asset class, leading to quite a bit of volatility in the price (or value) per acre of this class of real estate.

While investing in timberland itself is not very easy for the average investor, REITs like Plum Creek Timber (PCL) offer an appealing alternative. While Plum Creek (and comparables including Weyerhaeuser (WY), Rayonier (RYN), Deltic (DEL), and Potlatch (PCH)) are not pure plays on timber (many of them produce wood-based products and/or sell off lands for real estate development), they're as close as most investors will find, and the popularity of timber as an asset class has generally kept these shares well-valued.

Financial writers often talk about "waiting for a pullback" before buying a stock, and Plum Creek looks like it's offering just that sort of opportunity. With U.S. housing and real estate on the mend (albeit slowly), more lumber going to China, and new opportunities for wood like fuel pellets, Plum Creek's long-term value looks solid. Even so, the shares are down sharply from the May 2013 high and flat for the year. Assigning an objective fair value to Plum Creek may be like nailing Jell-O to a tree, but I would argue that the shares are worth at least $54 today which, in combination with a nearly 4% dividend yield, makes this a stock worth consideration today.

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Patient Investors Get A Crack At Plum Creek Timber

Taking Multiple Cuts At Plum Creek

These are strange times for companies trying to operate in the timberland industry. Although timberland theoretically offers the advantage of allowing companies to sit tight and literally let their assets grow, the reality for public companies is the expectation of ongoing dividend payments and growth that necessitates active management. As one of the go-to names in the timber business, Plum Creek (NYSE:PCL) is a mixed bag of good and bad news for investors today.

The Quarter That Was
Expectations were not all that high for the third quarter, but Plum Creek disappointed nevertheless. Performance in the actual timber business was not too bad - sawlog prices were higher than in the year-ago period, although still not at a level that is all that attractive. Due in part to uninspiring market conditions, then, Plum Creek has pulled back on its harvest levels.

The bigger issue, though, was in the real estate business. Not surprisingly, demand for land for housing remains weak and revenue and operating profits tied to real estate sales have dropped precipitously, draining away a high-margin source of business. Due in part to the ongoing slump in real estate, Plum Creek took down numbers for the fourth quarter. 


Please see the link below for the full piece on PCL:
http://stocks.investopedia.com/stock-analysis/2010/Taking-Multiple-Cuts-At-Plum-Creek-PCL-RYN-WY-DEL-PCH-IP1027.aspx